President Clinton's proposed new prescription drug entitlement for people on Medicare has significant problems, say experts. For instance, it would expand Medicare at a time when Medicare's unfunded liability ($8.9 trillion over the next 75 years) is twice the size of Social Security's. Also, it would duplicate coverage that 65 percent of seniors already have through private insurance and Medicaid. And while covering some drug costs, it would leave the elderly exposed for catastrophic expenses.

• About 360,000 Medicare beneficiaries spend more than $5,000 out-of-pocket every year on Medicare-covered services.

• In order to limit their financial exposure, about 75 percent of seniors acquire, either through a former employer or private purchase, supplemental (medigap) insurance, which pays many or all of the expenses Medicare does not.

• However, federal law requires medigap insurers, like Medicare, to cover small-dollar items such as the Part A and Part B deductibles; but they need not cover the largest bills, and drug coverage is an option.

Were insurers given more freedom, say analysts, they could offer more generous drug coverage, with no increase in premiums (See figure). A Milliman & Robertson analysis found that with the average amount Medicare currently spends on a each senior, a private plan could in principle establish a $1,585 across-the-board deductible and cover hospital, physician and drug costs above that deductible.

Many seniors are already spending $1,500 to $2,000 a year for medigap coverage, but a better option for seniors would be to take that money and put it in the bank. For instance, Roth IRAs could potentially serve as "backended" Medical Savings Accounts for the elderly.

Source: John C. Goodman (NCPA President) and Merrill Matthews Jr. (vice president of domestic policy), "Simple Solutions for Elderly Prescription Drugs," Brief Analysis No. 300, July 26, 1999, National Center for Policy Analysis, 12655 N. Central Expy., Suite 720, Dallas, Texas 75251, (972) 386-6272.

For text http://www.ncpa.org/ba/ba300.html